Equipment finance is one of the most common tools used by business owners needing to source additional funds.
The premise behind it is straightforward – capital is raised by using a key piece of equipment, which is already owned by the company, as security for the loan.
It can be seen almost as a form of reverse leasing – instead of buying a piece of equipment and paying for it over a series of instalments, instead you sell equipment you already own to a financing company and make a series of monthly payments over a set period of time to buy it back.
Although you are using a particular piece of equipment as security, as long as you adhere to the terms of the loan you retain full use of the item. Should you default on the loan, however, the asset could be seized by the lender and sold to recover the money owed.
It is often a requirement of the agreement that the piece of equipment you use as security for the loan is central to your business operations. A lot of lenders will also require the item to be something which is able to be physically removable from your premises should this be necessary. This provides the lender with added security, because if this is a piece of equipment you rely on, you will be more incentivised to keep up the repayments on the loan.
The amount you are able to borrow via this method depends entirely on the asset you are using as security for the loan: the higher the value of the item, the greater the amount you will be able to borrow against it.